An analysis of corporate governance development and prior studies IN THE FIRM VALUE CONTEXT

Abstract

This study aims to review the key corporate governance proxies that provide incremental information on firm value. A brief analysis is also conducted on significant prior research studies. Documentary review was used for data collection. The analysis starts with the definition of corporate governance. Then, review of the corporate governance index was carried out. It was found that the first corporate governance index was that initially introduced by Gompers, Ishii and Metric (2003). The study used shareholder rights to indicate a firm’s corporate governance level using the G-Index. The results showed that strict shareholder rights increased firm value. Later studies replicated Gompers, Ishii and Metric (2003) and introduced new corporate governance proxies. Many studies have successfully added more corporate governance proxies to increase firm value. Although prior studies have highlighted some successful corporate governance proxies. These have proven controversial regarding their judgmental and qualitative manner. Furthermore, data collection on the corporate governance proxies is somewhat problematic. Therefore, future studies should develop simple corporate governance proxies mean of data collection using publicly available databases that are stress-free.